Two Russian billionaires ended a four-year battle over the world’s biggest nickel and palladium miner on Tuesday by giving the largest voting stake in their $30-billion (U.S.) company to a third: Kremlin-favoured tycoon Roman Abramovich.
MMC Norilsk Nickel, which mines the vast mineral deposits of Russia’s far north, was one of the biggest prizes handed to insiders in the post-Soviet carve-up of Russian industry that created a generation of oligarchs.
Vladimir Putin, who returned to the presidency in May, has said he wanted an end to a feud between two of Russia’s richest men – Vladimir Potanin and Oleg Deripaska – over board control and payments to shareholders in the firm.
Tuesday’s deal appears to bear the stamp of the Kremlin, with Mr. Abramovich, the well-connected owner of London’s Chelsea football club, acting as enforcer to end the dispute.
Mr. Potanin and Mr. Deripaska agreed that Mr. Abramovich would buy a 7.3-per-cent stake, in the form of treasury stock, at market price. The stake is now worth around $2-billion.
The three parties will each contribute equal stakes, amounting to 22 per cent of Norilsk, to an escrow account that will be voted by Mr. Abramovich’s investment firm Millhouse – giving him the largest say over how the company is run.
“Millhouse will control the compliance with the partnership agreement while voting with this block of shares,” Mr. Potanin and Mr. Deripaska said in a joint statement issued by their firms. Millhouse declined comment.
The arrangement reduces the voting power of Mr. Potanin’s holding company, Interros, now 28 per cent, and that of Mr. Deripaska’s Hong Kong-listed aluminum giant UC Rusal, currently 25 per cent.
In return, Mr. Deripaska will get the higher dividends he has long sought. Mr. Potanin – who has controlled Norilsk since he won it in the “loans-for-shares” privatization scheme he ran as a top official in the 1990s – will be chief executive.
Analysts said the prospect of higher dividends would boost sentiment among portfolio investors, but new management would have to improve efficiency to trigger a sustained rally in the stock. Norilsk has a free float of 18 per cent.
“ It’s all about whether this shareholder agreement will translate into more effective management,” said Sergey Donskoy, metals and mining analyst at Société Générale SA. “If it does, that could help lead to a more substantial re-rating.”
Norilsk trades at around 8.5 times forecast 2012 earnings, putting it at a discount of a round 20-25 per cent to its Russian mining sector peers, Mr. Donskoy estimates.
Norilsk shares gained 1.35 per cent in Moscow to 4,876. Shares of Rusal, listed in Hong Kong, gained 2.4 per cent to HK$4.64, outperforming a flat broader market.
With Tuesday’s deal, the sides suspended legal cases. A London arbitration court had been due to open hearings into a case dating back to 2010 in which Mr. Deripaska accused Interros, Mr. Potanin’s investment company, of reneging on a deal to run Norilsk in the interests of all shareholders.
Mr. Potanin and Mr. Deripaska have been locked in a shareholder dispute since Rusal bought a one-quarter stake in Norilsk just before the 2008 global crash in a deal worth around $14-billion.
The acquisition was meant to herald a merger into an all-Russian major able to compete with global miners such as BHP Billiton Ltd., but that plan was crushed by the financial crisis.
Loss-making Rusal is now burdened by $10.7-billion in net debts, greater than its market capitalization of $8.9-billion, and is battling a fall in aluminum prices. Mr. Deripaska has resisted parting with the stake in Norilsk, now worth around $7-billion, the lion’s share of Rusal’s equity value.
Talks to end the dispute have been on-and-off but sources said in October they had resumed, fuelling speculation that a peace deal was in the works.
Mr. Abramovich, the 68th-richest man in the world with a fortune estimated at $12.1-billion by Forbes magazine, is widely viewed as having among the strongest Kremlin ties of the oligarchs.
Now a co-owner of FTSE 100-listed steel firm Evraz Group SA, Mr. Abramovich won control of oil firm Sibneft after its privatization in the 1990s. He sold Sibneft in 2005 to OAO Gazprom, the state gas export monopoly, for $13-billion.
Rusal said the deal would ensure Norilsk pays stable dividends for the years 2012-2014. The shareholders agreed that Norilsk will pay at least 50 per cent of its annual net income as dividend, said a source close to one of shareholders.
Norilsk will cancel the rest of its treasury shares – amounting to about 10 per cent. Interros and Rusal are not to sell shares for five years and Millhouse is not to sell for three years under a lock-up agreement.